Phase Separation
Solutions
B l u e Wa t e r Inc.
Consulting
June 2010
Ryan Seacrist|Chris Wagner|Cullen Berry|Micah Blyckert
Agenda
• Problem
• Solution
• Implementation
• Financial Analysis
• Conclusion
• Appendix
Situation
Declining Domestic Markets
International Growth Potential
Product Diversification
Troubled Domestic Market
Limited
Domestic PCB
Competitive
American Market
Bennet Environmental
Market Dominance
Market Share
Geographic Diversification
Equity Stake Vs. Licensing
No
Expenditures
First-Mover
Advantage
Direct
Oversight
Greater
Growth
Status-Quo
Risk Aversion
Maximize
Profits
International Growth Potential
GDP Comparison
16
China vs Canada Real GPD Growth
14
12
Real GDP Growth %
10
8
China
6
Canada
4
2
0
00
-2
-4
01
02
03
04
05
06
07
08
09
10
11
Joint Venture Options
Nanjing Institute of
Environmental
Sciences (NIES)
Zhoushan Nahai Solid
Waste Central Disposal
Co. Ltd. (Nahai)
Product Diversification Options
• Soil Remediation
- Persistent Organic Pollutants (POP)
• Oil Recovery
- Industrial Sludge
Solution
Domestic
International
Domestic Course of Action
1. License out TPS Technology to American Firm
- Effective Immediately
2. Maintain Soil Remediation
- Exit Domestic POP Market At End of 2011
3. Switch Canadian Operations
- Oil Recovery Starting Beginning of 2012
China vs. Canada PCB
China
Canada
Number of Sites
Over 800
Less than 125
PCB Contaminated
Soil
550,000 tons
200,000 tons
$ Revenue / Ton
$463
$367.5
PCB Market Size
$255 million US
$73.5 million US
Chinese Market Statistics
POP
Sludge
500,000 tons PCB
5.67 Mil tons
generated a year
1 Mil additional POPs
6.1 Mil tons imported
year
Yearly
✓ $14,100,000
Rev/TPS machine
$4,700,000 Yearly
Rev/TPS machine
Advantages of Joint Venture With NIES
Decreased Risk With Government Agency
High Barriers of Entry
Experience
Competitive Advantage
Large Market
Implementation
Short-Term
Long-Term
Administrative
Initial Market Entry
Year 1
Demonstrate
2,000 – 3,000 tons
Year 2
1 TPS/ 80% capacity
24,000 tons
Year 3
2 TPS/ 80% capacity
48,000 tons
Long Term
1. Revaluate NPV of Projects in 5 Years
2. Positive NPV From Soil Remediation
3. Positive NPV From Oil Recovery
Ownership Levels
Equity
NIES
PS2
Staffing Chinese Operations
Managing Engineer to China
NIES Provide Staff for Operations
Staff Trained Locally
Financial Analysis
NPV of China PCB JV
$8,000,000.00
$6,000,000.00
$4,000,000.00
Project NPV (PCB) = $15,163,943
$2,000,000.00
NPV ($)
$-
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
$(2,000,000.00)
$(4,000,000.00)
$(6,000,000.00)
*WACC
10%
Financial Analysis
Sensitivity Analysis
Sensitivity Analysis
$8,000,000.00
$6,000,000.00
$4,000,000.00
$2,000,000.00
8%
10%
12%
$Year 0
$(2,000,000.00)
$(4,000,000.00)
$(6,000,000.00)
Year 1
Year 2
Year 3
Year 4
Year 5
Conclusion
Questions
Appendix
• Assumptions
• Why not
• PCB in Canada
• Pharmaceutical Waste
• Sludge in China
• Do Both JVs
• SWOT Analysis
• TPS Advantages
• PCB NPV Table
• Sludge NPV Table
• Sludge in Future
•
•
•
•
•
•
•
Barriers of Entry
Future Opportunities
Chinese Business Culture
Chinese Regulation
Canadian Regulation
REV/COST/CASHFLOW
Sources
Financial Assumptions
•
•
•
•
•
•
•
•
•
•
•
•
•
$25,000 Revenue From Licensing TPS Technology to American Firm
$150,000 Revenues From TPS Royalties
$25,000 Salaries per machine per year
$2.5 Million Cost per TPS Machine
10% Operating Capacity for Year 1 in China
All Facilities Operate at 80% Capacity
2009 Operating Expenses used for Projections
25% Chinese Corporate Tax Rate
10% Canadian Corporate Tax Rate
$463.63 Revenue per ton of Sludge---Based of PCB Revenue per ton
Expansion of Option 1 Doubles Capacity to 60,000 tons
Expansion of Option 2 Doubles Capacity to 20,000 tons
*Joint Venture Revenues & Costs are Split 50/50
PCB in Canada
• Only 200,000 tons of known PCB left in Canada
• Market dominated by Bennett Environmental
• One of three facilities
• Government regulations require PCB eliminated by end of
2011
• Market for PCB soil remediation will be depleted in a little
over 2 years*
*Assuming total capacity of all three facilities in Canada is 110,000 tons/year; facilities
working at 80% capacity
Pharmaceutical Waste
Canada
• Slow growth rates
• High transportation costs
China
• Market expected to increase with aging Chinese population
• Potential for large profits and diversification of industry
• Low barriers to entry
• No current relationships in China
Industrial Sludge Treatment in China
• 10,000 tons able to be processed per year
• Lower NPV in comparison to PCB earnings potential
• Fixed location
• 100,000 future maximum capacity of facility
• Viable future option considering absolute amount of
POPs in China
PCB vs Sludge NPV Analysis
China PCB vs Sludge
$8,000,000.00
$6,000,000.00
$4,000,000.00
$2,000,000.00
PCB
Sludge
$Year 0
$(2,000,000.00)
$(4,000,000.00)
$(6,000,000.00)
Year 1
Year 2
Year 3
Year 4
Year 5
SWOT Analysis
•
•
•
•
•
Large Market
Niche Market
High Barriers of Entry
Government Assistance
Free Ad Campaign
• Emerging Market
• First-Mover
• International Relations
S W
O T
• Multinational Labor
• Cultural Differences
• Large Investment
•
•
•
•
Patent Expiration
Incineration
Policy Uncertainty
Economic Uncertainty
TPS Advantages
Recovery and
Recycling
Requires no
Pretreatment
NonIncineration
On-site Option
(Mobile)
Permitted for all
Types of
Hydrocarbon
Impacted Soil
Meets all air
Emission
Standards
PCB NPV Projections
Year 0
$$$$$$$$3,000,000.00
$2,500,000.00
$(5,500,000.00)
Year 1
$788,500.00
$375,000.00
$250,000.00
$1,413,500.00
$353,375.00
$1,060,125.00
$250,000.00
$$(500,000.00)
$1,810,125.00
Year 2
$13,512,000.00
$3,000,000.00
$250,000.00
$10,262,000.00
$2,565,500.00
$7,696,500.00
$250,000.00
$2,500,000.00
$2,000,000.00
$3,446,500.00
Year 3
$27,024,000.00
$6,250,000.00
$500,000.00
$20,274,000.00
$5,068,500.00
$15,205,500.00
$500,000.00
$$(1,000,000.00)
$16,705,500.00
Year 4
$27,024,000.00
$6,250,000.00
$500,000.00
$20,274,000.00
$5,068,500.00
$15,205,500.00
$500,000.00
$$(1,000,000.00)
$16,705,500.00
Year 5
$27,024,000.00
$6,250,000.00
$500,000.00
$20,274,000.00
$5,068,500.00
$15,205,500.00
$500,000.00
$$(1,000,000.00)
$16,705,500.00
$(4,250,000.00)
8% $(4,250,000.00)
10% $(4,250,000.00)
12% $(4,250,000.00)
NPV(8%)=
NPV(10%)=
NPV(12%)=
$905,062.50
$838,020.83
$822,784.09
$808,091.52
$16,520,374.11
$15,163,943.57
$13,925,076.63
$1,723,250.00
$1,477,409.12
$1,424,173.55
$1,373,764.35
$8,352,750.00
$6,630,682.25
$6,275,544.70
$5,945,322.46
$8,352,750.00
$6,139,520.60
$5,705,040.64
$5,308,323.63
$8,352,750.00
$5,684,741.30
$5,186,400.58
$4,739,574.67
REV
OPCOSTS
DEP
EBIT
TAX
NI
DEP
CAPEX
WFC
FCF
base
Sludge NPV Projections
Year 0
$$$$$$$$3,000,000.00
$1,500,000.00
$(4,500,000.00)
Year 1
$3,704,000.00
$1,500,000.00
$250,000.00
$1,954,000.00
$488,500.00
$1,465,500.00
$250,000.00
$$(300,000.00)
$2,015,500.00
Year 2
$3,704,000.00
$1,500,000.00
$250,000.00
$1,954,000.00
$488,500.00
$1,465,500.00
$250,000.00
$2,500,000.00
$2,200,000.00
$(784,500.00)
Year 3
$7,408,000.00
$1,625,000.00
$500,000.00
$5,283,000.00
$1,320,750.00
$3,962,250.00
$500,000.00
$$(600,000.00)
$5,062,250.00
Year 4
$7,408,000.00
$1,625,000.00
$500,000.00
$5,283,000.00
$1,320,750.00
$3,962,250.00
$500,000.00
$$(600,000.00)
$5,062,250.00
Year 5
$7,408,000.00
$1,625,000.00
$500,000.00
$5,283,000.00
$1,320,750.00
$3,962,250.00
$500,000.00
$$(600,000.00)
$5,062,250.00
$(3,750,000.00)
8% $(3,750,000.00)
10% $(3,750,000.00)
12% $(3,750,000.00)
NPV(8%)=
NPV(10%)=
NPV(12%)=
$1,007,750.00
$933,101.85
$916,136.36
$899,776.79
$2,439,192.91
$2,044,056.40
$1,683,486.26
$(392,250.00)
$(336,291.15)
$(324,173.55)
$(312,699.30)
$2,531,125.00
$2,009,288.63
$1,901,671.68
$1,801,604.78
$2,531,125.00
$1,860,452.44
$1,728,792.43
$1,608,575.70
$2,531,125.00
$1,722,641.14
$1,571,629.48
$1,436,228.30
REV
OPCOSTS
DEP
EBIT
TAX
NI
DEP
CAPEX
WFC
FCF
base
Sludge Potential in Future
NPV of China Sludge JV
Experience
from
Canadian
Operations
$3,000,000.00
$2,000,000.00
$1,000,000.00
$Year 0
$(1,000,000.00)
$(2,000,000.00)
$(3,000,000.00)
$(4,000,000.00)
$(5,000,000.00)
Year 1
Year 2
Year 3
Year 4
Year 5
NPV ($)
Increased
Cash
(Equivalent)
for
Investments
Barriers of Entry
Start-up Costs
Difficulty in Sourcing
Securing Friendly Locations
for Operations
2-3 Years of Regulatory
Evaluation
Future Opportunities
• 2001-75% of Food Samples had
detectable POP
• 10-15% Exceeded Levels Prescribed by
World Health Organization
• Clean-up Efforts are Still in Early Stages
Chinese Business Culture
• Government Connections
• Chinese Companies Favorable Over Foreign Companies
• Relationships
关系
Chinese Regulation
• $162.5 billion towards environmental protections
(2005)
• Stockholm Convention on Persistent Organic
Pollutants
• Difficult for Chinese government to eliminate the
use of POP
Canadian Regulation
• Government pledged $3.5 billion towards environment over
10 years (2004)
• Deadline for the ending of storage of PCB ends 2011
• Soil Remediation and Industrial Sludge Standards
• Ontario government initiated Land Disposal Restrictions in
2008
• TPS meets Canadian environmental regulations
Revenues/Costs/Cash Flows
China PCB REV/COST/CASHFLOW
$30,000,000.00
$25,000,000.00
$20,000,000.00
$15,000,000.00
Revenues
OpCosts
$10,000,000.00
Cashflows
$5,000,000.00
$Year 0
$(5,000,000.00)
$(10,000,000.00)
Year 1
Year 2
Year 3
Year 4
Year 5
Sources
•
•
•
•
•
•
•
•
http://www.phaseparation.com/
http://www.economist.com/blogs/banyan/2012/11/air-pollution-india
http://tabemono.info/report/former/pcd/2003/china/e_1.html
http://www.forbes.com/fdc/welcome_mjx.shtml
http://www.ec.gc.ca/bpc-pcb/default.asp?lang=En&n=663E7488-1
http://www.foxriverwatch.com/monsanto2a_pcb_pcbs.html
http://www.ehs.utoronto.ca/services/environmental/pcb.htm
http://www.pops.int/documents/implementation/nips/submissions/china_
NIP_En.pdf